Market-Based Pollution Reduction Schemes

Introduction:

The U.S. tradable permit system for sulphur dioxide emissions is an institutional innovation invented by resource economists, promoted by environmental interests, and implemented by the government as a constructed market to reduce air pollution.

Sulfur dioxide, the chief culprit in acid rain, is produced primarily by coal burning electrical power plants. To reduce overall sulphur dioxide emissions, EPA allocates a limited number of allowances to companies. Each allowance's current market value is about $200: and it permits the owner to emit one ton of sulphur dioxide into the air. Utilities that reduce their emissions more than required, may sell their excess allowances to those utilities for whom reductions are expensive. The result is a government mandated reduction in air pollution, with the industry deciding how it will comply.

We spoke with Jay Coggins about pollution trading markets, how they have worked thus far and how they might be applied to global scale air pollution such as green house gases.

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